On September 16, the SEC proposed rescinding Rule 14a-8, the shareholder proposal rule, which governs when companies must include shareholder proposals in their proxy materials. Rescission would leave those determinations to state law and company governing documents, where permitted by state law. The SEC concluded that the rule exceeds its statutory authority under Section 14(a) of the Exchange Act and that many of the original justifications for adopting the rule have not been proven or are less relevant today.
The SEC noted certain unforeseen aspects of Rule 14a-8, including the following:
- the rule’s use to influence company-shareholder interactions in ways inconsistent with its original purpose
- the SEC’s role in making judgments about the application of state law
- the rule’s effect on the development of state law and private ordering
In addition to the proposed rescission, the SEC proposed amendments to Rule 14a-4(c), which addresses a company’s discretionary voting authority for certain shareholder proposals. The proposed amendments focus on how that authority applies when companies receive proxies for shareholder meetings.
Should proposed Rule 14a-4(c) amendments be adopted, they will:
- provide companies greater flexibility to seek and obtain discretionary voting authority for shareholder proposals submitted outside Rule 14a-8 and omitted from company proxy materials
- address a current restriction that may cause companies to include proposals on their proxy cards even when federal proxy rules and state law do not require it
- allow shareholders to disallow companies from exercising discretionary voting authority concerning their individual shares
For more information on the rule proposal, click here. The comment period will remain open for 60 days following publication in the Federal Register.
Sources:
Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals and Amendments to Rule 14a-4 (sec.gov)
Proposed Rule (sec.gov)
Fact Sheet (sec.gov)
